Reverse Mortgage Securities Issuance Declines in October

Production of new reverse mortgage loan pools declined in October to roughly $325 million in issuance, down from $360 million in September and $344 million in August, according to data compiled by New View Advisors. This decline in new issuance counters recent arguments that a reverse mortgage recovery is underway following program changes implemented in October 2017.

Home Equity Conversion Mortgage-backed securities (HMBS) float grew in October. This small uptick is largely due to issuance of highly seasoned collateral, New View noted, including that despite more than $1 billion in payoffs, HBMS ended the month totaling $55.5 billion, up slightly from $55.3 billion at the end of September. Much of this issuance has been completed by Reverse Mortgage Funding, without which, float would have breached $55 billion on the downside.

“HMBS float has been range-bound between $55 billion and $57 billion, but could fall below that soon as payoffs usually outweigh issuance of new pools and negative amortization of existing pools,” New View projected in its monthly HMBS commentary.

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HMBS issuance was slightly over $1 billion, $473 million of which was accounted for by three large, highly seasoned issues, according to the data. Despite this issuance figure, the landscape suggests the industry is beyond “peak buyout,” New View Advisors’ Michael McCully tells RMD.

“While aggregate payoffs continue to hover around $1 billion per month, assignments to HUD continue to slow, suggesting we are increasingly likely past ‘peak buyout,’” he said, following an earlier prediction that the industry has reached “peak buyout” as the echo of peak issuance that took place from 2009 to the first have of 2013.

Much of this production has already been repurchased or repaid by borrowers, New View notes, as many loans have reached their buyout threshold, or 98% of their max claim amount.

Written by Elizabeth Ecker